South Florida becomes a national center for bullion firms operating in virtual regulatory limbo

March 19, 2011|By Jon Burstein, Sun Sentinel

With the price of gold at near or all-time highs, South Florida has become a national hotbed for companies operating in a largely unregulated niche of the precious metals industry, where some customers have reported losses in the tens of millions of dollars, a Sun Sentinel investigation has found.

In Broward and Palm Beach counties alone, more than 45 firms have opened since 2007, offering clients the chance to buy gold and other precious metals via heavily financed transactions.

In an environment devoid of federal licensing or reporting requirements, convicted felons and people with checkered regulatory pasts have been among those setting up shop.

"They took every dime I had," said Richard Ray, a Georgia man who lost $46,300 with Spyker Consulting, a Deerfield Beach-based precious metals firm supervised by two convicted felons. No criminal charges have been filed against Spyker officials over investors' losses, but one of the company's founders is now facing prison time after a FBI sting revealed he lied to his probation officer about his role in Spyker and two other metals firms.

The Florida Office of Financial Regulation has ongoing investigations into at least 23 area companies marketing opportunities to buy bullion and have it stored at a secure location. Hundreds — if not thousands — of Americans have entrusted their money to South Florida precious metals companies.

In the past 18 months, clients and creditors of seven local precious metals businesses have claimed losses of more than $54 million, a Sun Sentinel review of more than 2,000 pages of court documents shows. Among the developments cited:

The collapse of Lake Worth-based Global Bullion Exchange with 1,400 investors losing more than $29.5 million. Owner Jamie Campany has admitted in a sworn statement that money "distributed to customers came from funds provided by other customers," and metals weren't purchased as promised. Campany is being sued by the company's receiver for fraud. He has not been criminally charged.

A Broward judge froze the bank account of Pompano Beach-based JDC United Metals Inc. after a 70-year-old California retiree filed a lawsuit accusing the company of defrauding him of more than $627,500 in six months.

The bankruptcy of three related Miami companies — Certified Inc., Global Bullion Trading Group Inc. and WJS Funding — with more than $22 million in claims filed against them, court records show.

Industry defended

Defenders of this segment of the precious metals industry maintain it offers the public a chance to buy gold and silver as tangible hedges against uncertain economic times and a deflating dollar.

"We have a terrific program and, like anything else, it depends on who you are doing business with," said Robert Acocella, president of Monolith Bullion, a Boca Raton-based precious metals firm. "I personally will speak to every client that comes on board and we custom tailor a strategy to meet their needs."

Jeffrey Schuler, co-founder of Liberty International Financial Services of Fort Lauderdale, said his clients receive full explanations about how the metals are purchased. He said he prefers that clients have the bullion delivered to their homes.

"All of the firms that don't have complaints, no one hears about them," he said.

Monolith Bullion and Liberty International Financial Services are not being investigated by the Office of Financial Regulation.

Acocella and Schuler were the only two industry executives who agreed to be interviewed after the Sun Sentinel contacted 20 South Florida firms selling precious metals through financed transactions. Other companies declined comment or did not return phone calls.

How firms work

The metals firms have been opening at a rate of nearly one per month, setting up in office suites from Hollywood to Jupiter and relying on websites and telemarketing to draw in customers.

Many of the firms operate this way: Clients are offered a chance to buy precious metals and have them delivered to their homes or stored in a secure location. Most choose storage. Customers are also told they can buy "on leverage" — meaning they can obtain financing so they can purchase more metal.

For example, a customer could put down $1,000 to buy $5,000 worth of gold. The financing comes from separate businesses called "clearing firms" or "clearing houses," that have pre-existing relationships with the precious metals firms.

Under such leveraged arrangements, if metal prices fall by a certain amount, clients are subject to a "margin call," meaning they must pony up more cash — or risk losing their money.

A Federal Trade Commission official testified before Congress last year that the agency has seen a rise in unscrupulous telemarketers pitching highly leveraged precious metals sales to consumers who don't understand how the deals work or the risks involved.